TL;DR:
- The majority of businesses struggle with fraud concerns when onboarding new vendors or customers due to the rise of generative AI technologies.
- Synthetic businesses created by fraudsters and potential fines/regulatory actions are the top concerns during the onboarding process.
- Due diligence becomes challenging as criminals exploit generative AI to create authentic-looking fake businesses.
- A business email compromise is a common type of fraud where fraudsters impersonate legitimate businesses.
- Businesses are leveraging AI and machine learning to enhance internal due diligence processes.
- Over 50% of surveyed businesses plan to incorporate AI and machine learning for improved assessments.
- Companies should reinvest cost savings from AI implementation into strengthening corporate safeguards.
- Businesses need to think like criminals to strategically invest in technology and resources for effective fraud prevention.
Main AI News:
The integration of generative artificial intelligence (AI) technologies has facilitated the ease with which fraudsters can establish fake companies, posing a significant obstacle to due diligence procedures, according to a recent report. Released by the Association of Certified Fraud Examiners (ACFE) in collaboration with Thomson Reuters, the study highlights the growing concerns of businesses when onboarding new vendors or customers, citing synthetic businesses created by fraudsters and the potential consequences of fines or regulatory actions as the primary worries.
The survey conducted in relation to the report reveals that a substantial 61% of businesses surveyed find it moderately or extremely challenging to bring on board new vendors, while 52% face similar difficulties when onboarding new customers. The increased complexity stems partly from the arduous task of conducting due diligence to ensure that criminal actors have not exploited generative AI to create counterfeit businesses complete with official-looking websites and other deceptive features.
Dori Buckethal, the Vice President of Thomson Reuters Risk & Fraud Solutions, expressed her views on the matter, stating, “Organized crime rings are sophisticated and typically they’re ahead of the curve on the adoption of any new technology. What we see with synthetic identity at fictitious businesses is that generative AI and machine learning can replace what was once done with a very manual process within criminal organizations.” Buckethal emphasized that criminal elements are quick to adopt new technologies, and through the application of generative AI, they can expedite the execution of fraudulent activities, surpassing traditional methods utilized by criminal call centers.
Reputation damage and financial consequences are at the forefront of concerns for businesses engaged with fraudulent entities. Regulatory fees and fines become imminent threats if organizations are found to be collaborating with individuals or entities subject to sanctions. Furthermore, the financial losses incurred by companies due to fraud adversely affect shareholders and other stakeholders. Buckethal emphasized the magnitude of business-to-business fraud, asserting, “The estimates are in the billions of billions of lost revenue each year, and the ACFE experts have told us that they estimate 5% of business revenues are lost to fraud each year.”
One prominent form of fraud frequently encountered is business email compromise, where fraudsters impersonate legitimate businesses through email spoofing. For instance, within the real estate industry, criminals preemptively target companies by altering routing numbers to reroute payments to their fraudulent accounts when they are aware of impending financial transactions.
Despite grappling with the challenges posed by AI-enabled criminal activities, businesses have started to exploit AI to enhance their internal due diligence processes, specifically for customer and vendor assessments. The report indicates that over 50% of surveyed businesses plan to incorporate AI and machine learning into their operations within the forthcoming years.
Buckethal acknowledged this trend among customers, stating, “What we’re hearing from customers today is that they’re using AI and machine learning. They’re testing it out to automate their processes. So it’s specific pieces of their workflow that they go through for their due diligence process or their onboarding, know your customer process, that they’re trying to automate through AI.” She further mentioned that regulated industries prioritize coordination with regulators to ensure compliance. Regular meetings are held to discuss the deployment of AI and its results, ensuring a cautious and deliberate approach.
Conclusion:
The rise of generative AI technology has made it easier for fraudsters to create fake companies, posing significant challenges for businesses during the onboarding process. Synthetic businesses and potential regulatory actions are top concerns, necessitating robust due diligence. As fraudsters exploit AI, businesses must invest in AI and machine learning for enhanced assessments. Reinvesting cost savings into technology and resources is crucial for staying ahead of evolving fraudulent tactics. Adopting a proactive approach and thinking like criminals will help businesses effectively combat fraud and protect their reputation and financial interests in the market.
